_Income Producing Assets

Covid 19, allied with low oil prices and an already soft real estate market in the UAE in particular, together with an oversupply in most asset classes, inevitably will see both credit quality impacted and cash flow certainty impacted across the GCC. 

Rents have already seen varying degrees of downward pressure in most property sectors in the UAE and KSA for the last couple of years. Impending expat unemployment (outward movement of labour) with dented economic growth prospects indicates that credit quality will likely be negatively impacted – and thus a greater need for the valuer to understand the underlying business and balance sheet strength of any commercial tenant. 

Secondary and tertiary assets with more localised tenants could be hardest hit, however most asset owners and operators are going to be faced with drastically reduced operating incomes and almost all will be nervous about the ability of their tenants to make rental payments. We may see landlords seek more robust corporate guarantees in commercial leases going forward.

Not all assets will be impaired in the same way. From what we have seen in the more liquid markets, the hardest hit assets have been retail (regional / strip malls - which were already under some pressure), student accommodation and hospitality / hotels. 

In the more mature markets e.g. UK and US publicly traded REIT markets, we have seen the most affected sectors being: Hotels / Leisure (travel bans), Student housing (closure of educational establishments), retail (store closures), Offices (work from home), Kiosks and pop ups (restaurant and mall stand up tenants etc), whilst the least affected are Residential (necessity), Datacentres (online, ecommerce, WFH tech etc), Logistics (e-commerce / home delivery), Self storage (unlikely to be much moving short term), Hospitals / Clinics (vital services). 

We can expect to see a similar trend in the GCC, clearly hotels and retail have seen the biggest impacts to date.